In Venezuela, Oil Production Collapse Creates Social and Economic Catastrophe

As unrest grows in Venezuela, oil production mismanagement is turning the disaster from bad to worse. Find out more when you subscribe to World Politics Review (WPR).

When oil prices started their collapse in 2014, plummeting from well above $100 a barrel to just over $29 by early 2016, the market drama sent shockwaves across the global economy, producing winners and losers. Oil importers benefited from sharply lower import costs, while producers’ economies, particularly those that rely on oil for the majority of their exports, went into crisis mode. That was the case in Venezuela, where oil production remained the country’s primary export, accounting for an estimated 98 percent of export earnings.

Now that crude prices are rising again, the political and economic pressures are easing on oil exporters as revenues, in most cases, begin to surge. The one glaring exception is Venezuela, whose economy is continuing its downward spiral despite the sharp rise in oil prices.

The economy is in a state of collapse across Venezuela. Oil production, which should be boosting the economy, is no exception. Find out more about the breakdown of Venezuelan crude oil production in Why Higher Oil Prices Won’t Save Venezuela for FREE with your subscription to World Politics Review.

Why the Venezuelan Crisis Is Only Getting Worse

In addition to collapsing oil revenues, Venezuela has also suffered the scourge of hyperinflation, which inflicted staggering economic costs in South America in the 1980s and 1990s but until recently seemed like a thing of the past. Enter Venezuela, where inflation hit triple digits last year, at 652 percent. Without policy changes from the government, the International Monetary Fund forecasts that inflation rates will accelerate to 3,474 percent in 2019. Even this forecast may be conservative, as Venezuela’s hyperinflation becomes more severe due to a sharp decline in the supply of goods. The calamity is mainly self-inflicted—and Venezuela’s leaders could benefit from it.

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The Venezuelan Opposition’s Risky Gamble to Unseat Maduro

On a Sunday in early January 2019, masked men intercepted a white van carrying Venezuelan opposition leader Juan Guaido to a political meeting outside Caracas. They shoved Guaido into an SUV and sped away, taking into custody the man spearheading a bold and risky new strategy to try and reverse the country’s calamitous decline under President Nicolas Maduro. A week before, the Venezuelan leader was sworn in for a new six-year term. The ceremony might have seemed like a pro-forma event in a presidency that began in 2013. But Maduro’s second inauguration marked the beginning of a new phase of conflict in Venezuela, with the opposition launching a bold campaign whose international support is without precedent since the rise of Chavismo. A few days before Maduro’s inauguration, Venezuela’s elected National Assembly, dominated by the opposition but stripped of all power by Maduro, launched its new session by naming the 35-year-old Guaido as its president, effectively bestowing on him the mantle of bringing an end to the Maduro regime.

There Is No Quick Fix for Reviving Venezuela’s Oil Industry

In the weeks since then, many countries, including the United States and many governments in South America and Europe, have recognized Guaido as the legitimate interim president, as he declared himself in January. The U.S. also imposed sanctions on Venezuela’s state oil company, PDVSA. It is risky to predict the end date of the regime of President Nicolas Maduro, which has already weathered nearly six years of economic crisis. But if it is approaching, there should be plans for reviving the economy of an oil-rich but desperate nation. Guaido is already devising a strategy. He plans to introduce a new hydrocarbons law to attract investment and to name a former international oil company executive as president of PDVSA. Expectations ought to be tempered, however. Even if Guaido or another opposition figure finally takes the reins and starts fixing the oil sector, it will take years before oil exports can provide the economic boost needed to pull Venezuela out of the morass.

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In Venezuela, oil production should be the leading edge of an economic boom. Instead, the country’s socialist experiment has turned into a spectacular disaster, and the Venezuelan crisis is getting worse every day that Maduro is in power. Learn more about Venezuela’s politics, oil production, economic collapse, and social unrest in the searchable library of World Politics Review (WPR):

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Editor's Note: This article was first published in October 2018 and is regularly updated.